9/26/2019 Omo investors won't scrub away Kuraz's sugary stain - Ethiopia Insight EthiopiaAbout Alerts Contact InsightDonate Team HOME NEWS ANALYSIS IN-DEPTH VIEWPOINT ETHIOPIAN LANGUAGE Ethiopia Insight • Independent • Informed • Incisive • HOME NEWS ANALYSIS IN-DEPTH VIEWPOINT ETHIOPIAN LANGUAGE In-depth Omo investors won’t scrub away Kuraz’s sugary stain August 1, 2019 • by Benedikt Kamski https://www.ethiopia-insight.com/2019/08/01/omo-investors-wont-scrub-away-kurazs-sugary-stain/ 1/16 9/26/2019 Omo investors won't scrub away Kuraz's sugary stain - Ethiopia Insight Ethiopia Insight HOME NEWS ANALYSIS IN-DEPTH VIEWPOINT ETHIOPIAN LANGUAGE Private sugar investors are set to face the same challenges and dilemmas in the Lower Omo as the EPRDF’s fallacious planners When three leaders came to cut the ribbon of the Omo-Kuraz III sugar factory in October 2018, built using $290 million of credit from China Development Bank, all eyes were on southern Ethiopia. The visit of Prime Minister Abiy Ahmed, accompanied by his predecessor Hailemariam Desalegn and Eritrean President Isaias Afeworki, was an important step for Kuraz Sugar Development Project, an unprecedented mega- scheme of four estates in Ethiopia’s southwestern lowlands whose progress has been stuttering. The success of the venture was compromised at the outset by government overconfidence in its technical and financial capabilities. A decade ago, then Prime Minister Meles Zenawi and his colleagues aimed to replicate the success of the Metehara and Fincha sugar estates, both planned and constructed by the Dutch H.V.A. in the 1960 and 70s. https://www.ethiopia-insight.com/2019/08/01/omo-investors-wont-scrub-away-kurazs-sugary-stain/ 2/16 9/26/2019 Omo investors won't scrub away Kuraz's sugary stain - Ethiopia Insight The overstretch, initially overseen by Abay Tsehaye, first Director General of the Ethiopian Sugar Corporation Ethiopia(ESC), resulted in the Insightcostly redesign of waterworks, reduction in planned cane cultivation and processing capacities,HOME and, ultimatelyNEWS ANAL, a delayYSIS in the compensationIN-DEPTH of negativelyVIEWPOINT affected localETHIOPIAN communities. LANGUAGE Abay, then a member of the politburo of the Tigray People’ s Liberation Front, was previously board chairman of the Development Bank of Ethiopia and Commercial Bank of Ethiopia. The latter provided ESC loans since the turn of the decade worth more than $2 billion for projects in Afar, Tigray, Amhara, and Southern Nations regions. During the 2018 visit, Abiy proclaimed, in a manner typical of his predecessors, that the inauguration of Omo- Kuraz III showed results finally matching vision: “now the problems seem to be alleviated and we need to march forward”. Yet it isn’t at all clear who will be marching where. As the second five-year Growth and Transformation Plan nears its end, the ambitious goals set out in 2010 for the sugar industry, primarily employment and production increases, have not been accomplished. The clearest indicator is yet another international procurement tender for up to 100,000 tonnes of white sugar following the purchase of 200,000 metric tonnes late last year. This shows there is still a costly supply-demand gap. With several billion US dollars invested in new processors and modernizing estates, almost a decade of state-led sugar industrialization has yielded disappointing results. Output, for example, continues to fluctuate. After peaking in 2017/18, it dropped by around 40 percent to 240,000 tonnes in 2019/20, as heavy rains and spare parts shortages slowed production. Employment creation, a central objective of investing in the sugar industry, has been particularly unsuccessful. Kuraz has reached a point of no return So, while the completion of Omo-Kuraz III was a crucial milestone, in light of Kuraz’s overall struggles, and amid concerns about ESC’s indebtedness, the best way forward is uncertain. The government is seeking private investment to proceed, but it is far from clear that this is practical, or desirable. Human rights-focused critics of the Omo-Gibe basin development have described the effects of the upstream Gibe III hydropower reservoir and land-clearing for Kuraz in the Omo’s lower catchment as a tragedy that has caused hunger and conflict. The latest critical report was from US-based Oakland Institute, a vocal critic of Ethiopia’s river basin developments. Corroborating the Californian think tank, a recent academic study found the environmental and human costs of the Omo-Gibe schemes outweighed gains, yet the government still insists the opposite. https://www.ethiopia-insight.com/2019/08/01/omo-investors-wont-scrub-away-kurazs-sugary-stain/ 3/16 9/26/2019 Omo investors won't scrub away Kuraz's sugary stain - Ethiopia Insight It might come as a surprise to some that Abiy’s administration has pledged to finalize Kuraz. With the continuing Ethiopiabarrage of criticism, andInsight the administration’s eagerness to disparage the achievements of predecessors such as the TPLF’HOMEs Meles andNEWS Abay ,ANAL a rethinkYSIS might haveIN-DEPTH seemed likely.VIEWPOINT But the perseveranceETHIOPIAN demonstrates LANGUAGE that Kuraz has reached a point of no return; it became too big to fail, showing similarities to the Grand Ethiopian Renaissance Dam (GERD) where sunk costs and built structures leave no option but to press on. That said, the efforts to seek private investment indicate that all is not well at Kuraz. The planned privatization of sugar estates aims to increase capital and reduce ESC’s debt. But earlier projections of returns on investment are unlikely to hold. Instead ESC will likely sell without having repaid debts in full and without holding onto any significant future income streams. Moreover, the end of the state’s de facto industry monopoly and entry of new private stakeholders raise important questions. For one, how will private interests influence matters such as pastoralist policy and the construction of regional transport infrastructure as part of development plans. Additionally, the primary goal of sugar industrialization was to meet domestic demand. This could become secondary for investors who have to generate returns through exporting. Misadventure Many political decisions on big projects also have a symbolic function—arguably one of the hallmarks of Ethiopia’s Developmental State. If GERD was designed to symbolize the Ethiopian renaissance, Kuraz marked, high in the modernist mind, the far south’s impending transformation from a remote periphery to an agro- industrial export hub. Besides commercial considerations, the symbolism of Kuraz—planned as 175,000 hectares of sugarcane with a combined processing capacity of 84,000 tons of cane per day—should not be dismissed. The reasons for the project’s underperformance, and arguably also the Developmental State’s, are complex. Yet Kuraz’s travails points unambiguously to a large degree of ‘planning fallacy’. This form of overconfidence combined with ardent belief in the transformative power of technology had major consequences. In keeping with the nature of the authoritarian development model engineered by Meles, ESC rushed into the multi-billion dollar project, largely neglecting critical feasibility and impact assessments. In 2016, more than four years into construction, the number of processing factories was reduced from five to four, as Omo-IV was cancelled, and the planned cultivation area slashed to 100,000 hectares. This downsizing was mainly a result of funding shortfalls caused by additional spending on redesigning irrigation infrastructure, and the use of new subcontractors for project components initially handled by the Metals and Engineering Corporation (MetEC), which was formerly run by serving military officers. Since MetEC was stripped of all its contracts for constructing 10 processors, initially five within Kuraz, the construction of Omo-Kuraz I factory in Salamago district of South Omo Zone came to a halt, leaving a badly assembled half-finished factory. Omo-Kuraz II and Omo-Kuraz III factories, both constructed by China’s COMPLANT, entered production in March 2017 and October 2018—albeit at reduced capacity. By contrast, the https://www.ethiopia-insight.com/2019/08/01/omo-investors-wont-scrub-away-kurazs-sugary-stain/ 4/16 9/26/2019 Omo investors won't scrub away Kuraz's sugary stain - Ethiopia Insight inauguration of Omo-Kuraz V, designed and constructed by Chinese JJIEC, and especially Omo-I, is still a long Ethiopiaway off. Insight HOME NEWS ANALYSIS IN-DEPTH VIEWPOINT ETHIOPIAN LANGUAGE It created new conflict dynamics The construction problems have reduced the numbers of people employed on Kuraz. More than 110,000 jobs had been created for the local communities since 2011, according to official figures. This, however, is still far from the four jobs per hectare estimate given by ESC officials in 2014. Significantly, the ESC’s 2013 socio-economic development study refers to a total population affected by Kuraz of slightly below 50,000 people traditionally living on and in close proximity to the designated project area. This shows that migrant laborers from other regions of Ethiopia took more than half of the jobs. In its recent report, Oakland Institute quotes locals who accuse the government of ‘having tricked’ them. Agro- pastoralist such as the Mursi (Mun) or Bodi (Me’en) were meant to benefit from Kuraz through small-scale irrigation schemes, the provision of social services, and jobs. The delay in compensating locals for the loss of fertile plots created by receding floodwater and for grazing land lost to sugarcane is problematic for the government in at least two ways. First, it illustrates how the capital-intensive transformation of the region failed to bear fruit for its indigenous communities. Second, it created new conflict dynamics. There have been attacks on vehicles and workers as retaliation for killed livestock and human victims along the newly constructed road linking Jinka and Salamago. Such incidents affect the estate economy and create risks for farmworkers and drivers.